FEM: CBN stops letters of credit surcharge

Central Bank of Nigeria, CBN, now forbids banks to debit the accounts of (or surcharge), their names clients for short falls on letters of credit for which at the time of issue, the naira values were immediately paid.
Such debts by banks arise from shortfalls that follows adverse currency rates movements in respect of transactions covered by such letters of credit.
According to CBN, investigations of customers’ complaints indicate that most of these debits re in respect of transactions for which final payments were to be made in third currencies and that the short falls had arisen because of the failure of the affected banks to cover such transactions promptly through spot or forward purchase of the currency of final settlement.
The CBN also noted that there have also been instances where the accounts of customers have been debited with alleged exchange rate difference, several weeks or months after th original transactions, have been done. The same applied to travellers’s cheques prevailing buying rates plus exchange commission.
The Central Bank the directive noted is concerned about these developments which reflect poorly on the banking industry and call to question the competence and professionalism of some banks and their staff.”
As a result of the new development, the apex bank has directed all authorised dealers to cease and desist from debiting the accounts of, or surcharging, their customers for short falls on letters of credit for which, at the time of establishment, such customers had fully settled the naira equivalent of the amount payable in the currency of final settlement.
The CBN also advised banks operating in the country to purchase the currency of settlement on spot basis immediately full documents for establishment a letter of credit are submitted or to employ other effective covering arrangements to enable them minimise the risk of loss arising from adverse exchange rates movements.
The Central Bank reminded the banks of the maximum period of 15 working days stipulated for the establishment of letters of credit after the acquisition of foreign exchange. The CBN further reminded them that any funds not utilised within the prescribed period should be repurchased by the dealing bank in keeping guidelines.
Continuing the CBN also noted that where a bank purchases traveller’s cheques at its prevailing buying rate and charges exchange commission the transaction is sealed and settled at that rat and further recourse to the customer to recover rate difference is unwarranted.